Feedback for call for information on digital currencies, UK

Dear Andrea Leadsom and HM Treasury,

The answers I give are from the perspective of a member of the public, and a software engineer who works for a company creating solutions to facilitate e-commerce for other people. I have no special requests with regards to the privacy of the information contained within.

Answer 1:

From an end user point of view: a digital currency is uniform. Precisely because there are no borders, I would no longer need to deal with a number of different currencies. The EUR was a good idea from this perspective, but that carried with it its own set of problems. Currently not all of the 28 member countries adopted the EUR (the UK being one of them). A digital currency would be a good (better) solution. In essence all currencies represent value. Why we still need a myriad of different ones to do that is beyond me seeing as they are mostly interchangeable anyways. That said I am not entirely sure why we need different digital currencies either.

From a developer's point of view: instant feedback about a transaction taking place, there’s no need to wait until the bank clears the funds or paypal manages to capture them to send back a notification about it. There are only two parties involved, the client where the transaction was initiated, and the gateway the client connects to that maintains (part of) the ledger. In the case of paypal, it would be client - paypal - bank - probably other bank and then back on the same chain. This would erase a lot of ambiguity about transaction statuses, and would help dropshipping companies who only want to dispatch goods once payments have cleared. This today may take a few days, depending on financial institution.

Wider economy, and I’m talking about World, not just the UK, would benefit from less pending transactions, more solid transactions. A lot of processes would speed up allowing time to be spent more efficiently on creating value versus waiting on red tape.

Answer 2:

Yes. The current blocker for digital / cryptocurrencies in wider adoption is precisely because none of the governments want to be the first one to actually recognise these as valid forms of payment, so they are still a hybrid system of barter / money. They hold value because the people using them believe they hold value because they trust that later in the chain they’ll be able to exchange them for something of comparable value, such as food, shelter, entertainment, anything. The tech community is the main adopter, with a few other instances of non-tech businesses / people accepting them who come in regular contact with the tech community.

That said any work done on digital currencies by any government should not be confined to the country itself, as they need to work across borders. Australia is working on the same issue. Estonia wants to be a digital hub of the European Union, I’d be surprised if they weren’t looking into digital currencies.

Intervention should be consultation with leading economists / policymakers / lawyers. Tech people tend to lack those skills. Economists / policymakers / lawyers tend to lack the deep technical skills needed to fully understand digital currencies. If there’s a continuous, moderated dialogue, free from lobbying from both parties, good things can happen.

Answer 3:

Personally I think there should be one default worldwide digital currency developed and adopted by all nation states. Regulation should be under a new international regime, independent of any government influence, but also accountable to every government and other regulatory bodies. National regulatory body doesn’t make sense, as that would only fragment the digital currency space if all the 191 other states did the same. European regulation again doesn’t make sense, as there are an arbitrary number of state groups formed to achieve various roles that could also adopt a regulatory body themselves. Some of these would overlap, and I assume some countries would not fall under any of those.

The disadvantage is getting to a worldwide agreement. Currently the political scene is such that each and every country wants to be proud of things they did themselves, and sometimes countries disagree with each other on principle.

Answer 4:

Lack of official support, ambiguity about taxation (even though it’s out of scope), fear of the currency “going out of business”, or losing its value. It might also gain a lot of value as well. Lack of stability, lack of understanding by the general public, lack of trust from the parties involved. Digital currencies are inherently technical, and a very small segment of people are currently technically savvy enough to understand how they work. For most people, this would be a deterrent.

Answer 5:

Erosion of gatekeepers is one. A huge benefit is transparency. Companies, accounting and auditing firms would no longer be able to mask certain transactions, a huge level of inherent honesty is baked into the distributed ledger. Everyone would be able to take a look. Outside modifications are impossible as the rest of the ledger would not agree to changes made to a node without there being an actual transaction. These are incredibly significant, and would make companies / government / politicians / people a lot more accountable.

Answer 6:

As the referenced documents, chargebacks are hard or impossible to implement in case of unfulfilled shipments. These however can be offset by implementing an escrow system into the digital currency itself that would only release funds upon receipt of goods, but upon receipt of goods funds would HAVE TO be released. How that’d be controlled is a technical detail (I guess postal services need to evolve as well to keep up).

On the other hand, because the ledger is totally open, everyone can take a look. With meta-information available to everyone through social media or simply observing the spending habits of certain people, ids connected to wallets can be de-anonymized, and the entire collective purchasing behaviour of every person / company / government would be up for grabs to be analyzed by public and private corporations. Whether that’s a lack of privacy people would be willing to live with is an absolutely different question.

Answer 7:

Due to the nature of digital currencies and distributed ledgers, the government (or any government) would have no special place. Everybody is equal, every wallet is an equal agent. The government could restrict, by law, anyone to make use of de-anonymizing analyses, although being somewhat sceptic about governments in light of the Snowden revelations, I have a feeling governments would be the very first actors to make use of this readily available data.

The market could come up with a system to regulate / shield itself, but that remains to be seen. Sometimes significant changes might need to be rolled out to the entire ecosystem affecting every node, wallet, ledger.

Answer 8:

Yes, definitely. It should do that in tandem with all other governments on the planet under a new international regime, see answer 3. Digital currencies work differently than conventional cash / virtual currencies, so trying to fit digital currencies into a system that wasn’t designed to handle them makes no sense.

Unintended consequences include, but are not limited to, loopholes in regulation. As with any new system at its inception, the people using it are largely unfamiliar with every aspect of it, and only by bumping into edge cases will we, a number of years down the line, understand what CAN possibly go wrong, and even then there’d still be novel ways to potentially misuse the regulation / currency.

Another way to mitigate user detriment would be to use a safety net of insurance based on conventional currencies; to have a failover in case something unexpected happens: much like what happened to paper money when it still had gold reserves. Once paper money was well understood, the gold reserve was removed. The same step could potentially be taken during the adoption of digital currencies.

Answer 9:

Currently anonymous wallets can be set up in digital currencies that do not require actual identification of the person opening them. This fact, combined with clever usage of VPNs and other proxies may make detection of illegal transactions hard, and forensics time consuming. I can not break these down to the different digital currencies. I operate under the assumption that there would be one.

Answer 10:

To an extent. There is a conflict of interest here: the internet should be free and open, but certain transactions should be regulated / tracked / traceable. If governments decide to adopt one currency, then the creation of accounts can be tied to identification. Taking no action could enable illegal transactions to take place, although if the system was built in such a way that it would be self-policing, then the digital currency could very well become hostile towards illegal transactions. How it would decide what is illegal, or whether it should even do it automatically is another question that I can not answer.

Answer 11:

This is a question I do not feel qualified to answer.

Answer 12:

Forcefully taking money out of accounts is not possible as far as I am aware. In Hungary the tax authority has the power to lay claim to an amount on a person’s or a company’s bank account without the person or company giving explicit permission: it is built into the laws of the country. I assume a similar law exists in the UK as well. This is only done if the person / company failed to pay the necessary money to the tax authority for tax purposes. Courts can also enforce taking money out from an account if sufficient claim was made and demonstrated.

Answer 13:

Because in the case of bitcoin there are finite number of distributable units, in order to keep a growing world economy represented by the same finite number of units, the individual units by definition need to get larger in value. This could potentially create an automated way for a few select accounts to increase in value without actually doing anything.

Another potential risk is that in order to have more distributable units, they need to be subdivided into even smaller parts, which will present problems on a protocol level.

Currently the value of digital currencies also fluctuate greatly and without anyone being aware what the actual value of one unit is, it can create serious wealth imbalances.

I hope my feedback was useful, and thank you for organising this call for information.